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T-Mobile: Nearly Roadkill a Year Ago, Now a Roadrunner?

Which brings us to today. Had the merger gone through, a giant AT&T and a similarly huge Verizon would have likely further weakened #3 carrier SprintPCS. The industry would have began to resemble a duopoly even more than it does now. Instead, the T-Mobile/MetroPCS combination looks formidable going forward and the more level playing field helped encourage Japan’s Softbank to buy a 70% stake in Sprint just weeks after the MetroPCS deal was announced. Assuming Sprint can sort its ownership of partner Clearwire, that combo will be very spectrum rich, which will increasingly be a competitive weapon as customers demand more and more data out of their smartphones and tablets.In fact, things are setting up in a rather interesting way. Verizon and AT&T have moved away from unlimited data plans in 2012, slowly but surely requiring customers to switch to plans that have a limited amount of data they can share across any combination of smartphones, tablets and laptops. While most people today typically use less data each month then the limited amounts the plans offer, power users — those that stream a lot of music and videos on their mobile phones for example — aren’t so lucky. They are doing everything they can to keep their unlimited plans. It’s also true that for an individual user, the two largest carriers tend to be pretty expensive. A new smartphone plan on Verizon or AT&T will run you a minimum of $90 per month, and that includes just 1 gigabyte worth of data. The same $90 on T-Mobile buys you unlimited data and an equivalent plan on MetroPCS is just $55 monthly.

Now, it’s worth mentioning that this isn’t a pure apples-to-apples comparison: T-Mobile doesn’t have the fastest 4G service, LTE, and MetroPCS doesn’t have the coverage of the major carriers (though it does offer LTE). But you can see where this is going. T-Mobile is marketing itself as the value brand and is acquiring an even more value-oriented brand. In a time of stagnating incomes, this is likely going to resonate well not just with consumers, but small-business customers as well. And if T-Mobile can demonstrate the quality of the coverage, it could even make inroads at the high end.

The Ghosts of Christmas Future

Value pricing, however, is hardly anything new. What’s new in this case is the combination of a national carrier’s footprint with a super-low-price carrier in MetroPCS. Don’t expect Verizon or AT&T to respond to any pricing moves, but do expect them to carefully watch the reaction to T-Mobile’s end to subsidized phones. Most of you are aware that when you buy a phone from your carrier, you don’t pay the full price. What is perhaps less obvious is that not only do you commit to that 2-year contract, but you also pay for the subsidized phone every month through your monthly fee. Of course, this is never itemized on your bill; it’s just part of your charge.

What T-Mobile is going to do is simply separate out the billing for your service from your phone. Say goodbye to the $199 iPhone and hello to the $99 and $20 per month for 20 months iPhone, as CEO John Legere explained it to GigaOm. In return, your monthly fee would be $20 cheaper every month. Sure, that looks a lot like the current model, but a big difference is that you’ll only pay the extra money while you’re paying off a new phone and then you’ll return to your discounted rate. If this works, you could theoretically benefit if you buy phones often (great for techies who need to own the latest and greatest and will pay for them) or rarely (since you’ll pay less every month).

Spanish carrier Telefonica tried this and found it didn’t work so well. “It was a disaster,” said Tracy Isacke, director of Telefonica Digital, whose company shed as many as a quarter million customers a month. Of course, Spain has had its own unique set of problems and the experience might not be replicated here. This experiment will be watched very closely and could have ramification for Apple and Samsung, whose unsubsidized — read: full retail — phone prices are among the highest in the world. On Verizon, the iPhone, starts at $649 and the Samsung Galaxy S3 starts at $599.

As we look ahead to mid-decade, the Really Big Two and the Next Big Two might face even more competition, and not just from the numerous regional carriers still out there. Dish Network just recently received approval to use some spectrum it owns to build a mobile-data network. While it might find the cost of going it alone prohibitive, the possibilities are intriguing. And the FCC continues to search for ways to free up additional spectrum over the course of the decade to meet increasing demand. Much of that will wind up in the hands of incumbent carriers as it has in the past. But as we head into 2013, we can at least know there will be four of those nationally rather than two.

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